Nestle was perhaps luckier than the contestants in the Rs 600-crore organised coffee parlour business in India. The problems are many and not easy to pinpoint. While domestic coffee consumption is increasing, per capita consumption of coffee in India is abysmally low. Against a per capita consumption of 4.09 kg in the US, 3.03 kg in the UK and 3.41 kg in Japan, India figures stand at a paltry 80 gm. The good news is that while the overall coffee consumption in the country is growing at 7-8%, the out-of-home consumption is growing fasterat 15%.
So as product developers and marketing hands scratch their heads to figure out new ways of luring customers and generating higher store traffic, competition in the form of tea and mocktail parloursand even milk barskeep on chipping at their heels. To top it all, the prospect of global competition looms larger than ever before.
Take this. Last month, US-based coffee retail giant Gloria Jeans Coffees joined hospitality company Citymax India to launch its chain in the country. Citymax India, part of the
Dubai-based Landmark Group, plans to invest Rs 40 crore to roll out 90 outlets across India in the next four years. The company will open its first outlet in Mumbai next month and follow it up with parlours in New Delhi and Bengalooru.
Recent reports also suggest that PVR will sell Starbucks products at its multiplexes in Delhi and Mumbai. A PVR executive told The Financial Express that the company has a tie-up with a local partner, which, in turn, will supply products of the US beverage major to the multiplex operator in India. This, by all indications, may be a precursor to a full-fledged entry when the time is right.
On its part, the Ravi Jaipuria group, which brought the Costa Coffee brand in the country through a franchisee tie-up with the 1.8 billion Whitbread Plc of the UK, has upped the ante opening retail outlets at many new and upcoming malls.
Global competition is one thing. If the largest integrated coffee company in Asia, which happens to be a homegrown company, throws its hat into the ring, all calculations tend to go awry. Tata Coffee did just that when it announced the launch of Tata Mr Bean Coffee Junction, some years back. Now the company, which had a substantial stake in the coffee pub chain, Barista, is reportedly eyeing a bigger chunk of the action, and in the process, a larger share of the market.
In such a scenario what do the trailblazers do Are Barista and Caf Coffee Day (CCD)the two brands that shaped the outdoor coffee culture in the country and together control about 75% of the organised coffee chain market currentlyready to stand up to the emerging challenge
Ask about competition, and everybody is at their eloquent best. Says Simran Sablok, general manager, marketing, CCD, a chain set up by Amalgamated Bean Coffee, At CCD we have never been competitor-focused; we have the customer on our minds always.
On its part, Barista has its own agenda. We must remain true to our consumer offering, says Rini Dutta, vice-president, marketing and product development, Barista, which changed hands several times since inception. This impacts the way we maintain our store look, the new products launched and our service standards. Our focus will be on innovation.
The battle lines have been drawn. And the signs are right before your eyes.Visit a Barista outlet for proof. The change is on the wall, literally. Fresh colours, new paintings will greet you. But yes, the past isnt yet dead.
When Barista set up its first outlet seven years ago, the differentiated product experience coupled with great media buzz helped the brand stand out and create a niche for itself. Critics did predicted its doom, pointing to the fact that the coffee trend may not pass the test of time in a country hugely tilted towards tea.
True, the challenges were immense. Though Indians had been introduced to a global lifestyle, the idea of drinking coffee out of home needed some hardsell. Says Partha Dattagupta, CEO, Barista India, This meant you needed time to break even because footfall was low. Moreover, each coffee bar involved a fair amount of investmentin not just the product but in creating the right ambience. But executives at Barista also knew that they could turn the corner if they managed to get the people in.
The strategy was simple. The company chose high-street locations, where people couldnt miss the outlets, and promised a novel experience. The idea was to first attract the consumer and then sustain their interest with the service and an ever-changing menu.
But those were different times. Todays youth is more demanding and the market more crowded. And for Barista, wresting the first-mover advantageit was the first chain though CCD launched its first outlet before Baristaback from CCD, would be far from easy.
If the number of outlets is anything to go by, Barista has clearly fallen behind. While CCD boasts of 475 outlets across 87 cities in the country, Barista has 175 stores across 29 locations, with 16 located outside India. CCD executives say the company is busy preparing to launch its 500th caf in India, with plans afoot to set up 12 outlets in Europe and Pakistan.
Numbers notwithstanding, Barista executives are bullish. Our business philosophy is that we must have a very vibrant brand, says CEO Dattagupta. Brand image isnt necessarily a function of the number of stores. Its a function of what people think about the brand, the loyalty they exhibit towards it and the repeat purchase of the brand products.
The company also plans to open 70 outlets by the end of this financial year and 100 more by the next fiscal. That apart, it hopes to set up an average of 100 outlets per annum over the next two/three years. That may not still make us No 1 in terms of the number of outlets. But thats OK, says Dattagupta.
Clearly, Barista is, at the moment, more concerned with its brand image, profitability and a sustainable growth model rather than expansion. To that end, it is ready to invest about Rs 140-150 crore over the next three years. Barista, which works with has two modelsthe mass Espresso bars and the upmarket Crme barsis currently renovating about 100 of its outlets. The company also plans to extend the Wi-fi services, currently available at 35 stores, to 100 locations.
And its not just the amount of investment, but the positioning of coffee too is likely to see a shift. Food will grab the centre stage soon. The reason: coffee without food cant make the experience complete. Since these outlets serve as meeting points for the youth, the number of non-coffee drinkers visiting the outlets is on the rise. That apart, food items bring variety and contribute significantly to the overall revenue. About 70% of the revenue at Baristas Espresso bars, for instance, comes from beverages and the balance from food. At crme bars in comparison, food contributes 40% to the sales.
Rival CCD is not far behind in terms of its expansion plans. On the face of it, the strategy of the two brands may seem identical; the difference, however, lies in the implementation. While CCD has different menus at separate locationsand hosts food festivals tooBarista provides offers games, live music, reading, and photographic exhibitions as product plus.
All the good news, however, wont take away from the challenges ahead. First, real estate prices are skyrocketing. High-street presence in Delhi and Mumbai are said to be in line with some of the most expensive cities of the world. Second, manpower is a nagging problem just like in other high-growth industries. So getting the right people, retaining them, and managing and instituionalising high levels of training will continue to be a big issue. Third, ensuring the same quality across outlets across locations is a major task as consumers become more discerning and demanding.
So after years of playing the game largely by their own rules, Barista and CCD are finally poised to face some real competition. No prizes for guessing, convenience, a selection of coffee blends and flexibility will play a major role in keeping their markets.